It doesn’t really make much sense, does it? If you stop and think about it for more than a quick second, this notion of a labor shortage doesn’t get past the smell test. The economy overall is, we hear, booming. Really booming. And it’s booming in a way that has the labor market healing far faster than thought not long ago (setting aside, for now, how we’ve heard this a few times before). So fast, even the cautious Jay Powell is rethinking his models into tapering his QE.
Yet, American workers already sidelined by two huge recessions (we still hadn’t recovered from the prior one) just are not streaming back into the workforce like they would if any of the above were true.
The only way to attempt to reconcile this booming economy with that damning labor force contradiction is by way of some presumed labor shortage. Companies are, according to this view, falling all over themselves to find workers, but are unable to procure their labor because of the overly zealous government handouts rendering employers’ preferred wages uncompetitive.
It sounds plausible enough in a vacuum of ceteris paribus, especially since pockets of such anecdotal complications are easily spotted throughout the US. However, if business was as incredibly robust as all this, then an extra $300 per month wouldn’t really be much of an impediment to buzzing businesses more concerned about keeping the good times rolling in.
If things are this good, what’s stopping them from paying the market-clearing wage?
The logical, rational answer is: maybe things aren’t “this” good after all. Or, at best, maybe the situation is alright even relatively good (better than last year isn’t a high bar, though) right now, but perhaps companies are a bit more concerned about whether it will or even could last much longer.
In either of those scenarios, in the aggregate firms would continue to operate more cautiously, content to over-manage their costs in exactly the same way as they had been, frustratingly, since 2009. Practically everyone’s biggest cost is, of course, payrolls.
It is not a labor shortage when businesses say they want more workers but won’t or can’t offer nearly enough for those prospective employees to come off the sidelines. Not a labor shortage but an economy shortage.
And maybe the best single example of this is the ISM’s PMI estimates. Being September 1, that means the ISM reports today its estimate for August 2021 manufacturing. The headline index bucked the recent trend, mildly, by rising 0.4 pts to 59.9 from July’s 59.5. These are 2018-type numbers, so already nothing really extraordinary.
They do stand in sharp contrast to one particular subset mixed up in the overall calculation: the ISM M’s employment subindex. This part has been “unusually” weak since peaking all the way back in March (again, March and April show up everywhere around the world). But even in March, and going back to last year’s recession, this substantial difference between the headline index and its employment component stands out.
No more so than this latest update for the month of August when the ISM reports a few more manufacturing employers said they cut workers than replied they had added them; the subindex dropped from nearly four points, from 52.9 in July to just 49.0 in August. It was the second month below fifty out of the last three.
In other words, according to the ISM (and we’ll see on Friday if the same holds for their Services PMI in August as it already has up to last month) it sort of looks like manufacturing is doing well except that these businesses aren’t really hiring as if that was the case; an excellent example of this labor “conundrum.”
COVID? Cold/warm weather? Xi Jinping’s crackdown cybergoons? What was it about March/April (or February around the 24th and 25th?)
Before thinking about the shrinking possibility the labor market’s apparent problems might really stem from some shortage, payroll processing provider ADP today also released its payroll number for the same month of August 2021.
In years past, +374,000 (private) would’ve been decent even excellent; in 2021, it counts as a pretty sizable disappointment and for the second straight month. This is about half the monthly rate set by, and expected for, the taper-rationalizing Establishment Survey.
And it is uncomfortably too close to slowdown pattern showing up in the ISM’s; along with the same apex falling right after March/April. Even ADP’s resident Economist couldn’t deny this “unexpected” detour:
Our data, which represents all workers on a company’s payroll, has highlighted a downshift in the labor market recovery. We have seen a decline in new hires, following significant job growth from the first half of the year.
Lazy Americans too comfortable at home eating off Uncle Sam’s leftover nickels? Or, US businesses which have realized once those nickels fade into history the economy probably, even very likely doesn’t look anything the same as the “red hot” frenzy of ISM’s and retail sales (or PCE) from earlier this year when the government’s expensive helicopters flew freely.
The former a labor shortage quite like the imaginary one from 2018 which didn’t sway much back then, either. The latter, all-too-consistent with data, evidence, actual markets, etc., all but the mainstream economic narrative in that same way, too. Even the Establishment Survey and the Unemployment Rate find themselves in isolation once more, as there are any number of alternative employment data – a few shown here – which are looking at ostensibly the same thing, the labor market, and coming up with a grossly different picture of it.
Even if there had been a worker shortage, much of this data indicates the growing possibility of its past tense.
The most probable, and logical, interpretation is an economy materially (and predictably) slowing down more likely never having had the jobs situation tighten as much as had been said. If the FOMC holds to type, they will taper anyway on the advice of their true “love” while in the end, yet again, it won’t make one bit of difference.
Yes, taper; no tantrum. No labor shortage; yes, another summer slowdown.